UK Coal has slumped by a fifth after reporting a £20.6m first half loss, following a poor performance from its Daw Mill mine and weaker prices.

Britain's biggest coal producer is struggling under £138m of debt and a £430m pension deficit. But it said it had reached agreement on a restructuring plan to split in two, a mining operation and property business. The property division would take on its debt while the mining business would take on the majority of the pension liabilities.

Its pension trustees and power generator customers will extend a £90m support package until the end of 2015.

Analyst Hunter Hillcoat at Investec said:

We recently reduced our forecast earnings to reflect lower assumed coal prices. The actual impact of this (together with previously highlighted operational issues) has now been evidenced in its first half results.

That being said, UK Coal's immediate earnings are, in our view, of limited significance, given the potential extent of the business restructuring, and the resultant impact on company valuation. The company states that it has made good progress in this regard, reaching agreement in principle with the key economic stakeholders, although it also states that there remain significant challenges and risks to completing the process. The restructuring plans remain in line with previous outlines, with the mines and the property divisions to be segregated from each other, the bank debt to be assigned against the property company and with key stakeholders taking direct interests in the resultant components of the business.

We continue to reserve any investment recommendation until some certainty can be provided in this regard.

Many investors made their own minds up, and the company's shares have dropped 1.5p to 6p.